Executive summary

Executive summary

Microfinance is the provision of broad range of financial services such as deposits, loans, payment
services, money transfers and insurance to poor people and low income households and their micro
enterprises. It is an effective tool for making the banking services accessible to the rural unbanked
areas. Improved access and efficient provisionof savings, credit and insurance facilities would enable
the poor to set up micro enterprise, build up economic assets, manage the risks better and enhance
income earning capacity and resultantly improve their standard of living.India is a country of villages
even today but on account of lack of infrastructure resulting in lack of opportunities for the
population migration of youth continues unabated. The urban centers are getting flooded with masses.
To stop this migration we have to provide opportunities to under privileged people of rural areas.
Microfinance is a major tool available to create opportunities and help people to raise their quality of
life. Although this fact is well established and understood the approach taken to achieve is yet to
prove itself and hence despite huge money being made available for these projects success is nowhere
visible. The business correspondent and business facilitator model envisioned by RBI and
commercial banks needs major revamp.In the development paradigm, micro-finance has evolved as a
need-based policy and programme to cater to the so far neglected target groups (women, poor, rural,
deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of
the poor and the alleviation of poverty. Development organizations and policy makers have included
access to credit for poor people as a major aspect of many poverty alleviation programmes.Micro-
finance programmes have, in the recent past, become one of the most promising ways to use scarce
development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-
finance programmes have gained prominence in the development field and beyond. The basic idea
of micro-finance is simple: if poor people are provided access to financial services, including
credit, they may very well be able to start or expand a micro-enterprise that will allow them to break
out of poverty. Thus, micro-finance has become one of the most effective interventions for economic
empowerment of the poor
INTRODUCTION
 INTRODUCTION

Microfinance is the supply of loans, savings and other financial services to the poor. The term
―micro‖ is in reference to the small amounts typically involved in the practice. These services are
small – ―micro‖ – because a person who does not have a lot of money most likely will not need a
loan of several thousand rupees. However, a loan of a few hundred rupees may make a huge
difference in their lives, giving them the ability to purchase livestock for a small farm, a sewing
machine to help make accessories and clothes, or supplies for a small store.

The poor throughout the developing world frequently are not part of the formal employment sector.
They may operate small businesses, work on small farms or work for themselves or others in
a variety of businesses. Many start their own ―micro‖ businesses, or small businesses, out of
necessity, because of the lack of jobs available. Microfinance refers to small scale financial
services for both credits and deposits- that are provided to people who farm or fish or herd; operate
small or micro enterprise where goods are produced, recycled, repaired, or traded; provide services;
work for wages or commissions; gain income from renting out small amounts of land, vehicles,
draft animals, or machinery and tools; and to other individuals and local groups in developing
countries in both rural and urban areas‘- Marguerite S. Robinson.

India puts stress on providing financial services to the poor and underprivileged since
independence. The commercial banks were nationalized in 1969 and were directed to lend 40%
of their loan able funds, at a concessional rate, to the priority sector. The priority sector included
agriculture and other rural activities and the weaker strata of society in general. The aim was to
provide resources to help the poor to attain self-sufficiency. They had neither resources nor
employment opportunities to be financially independent, let alone meet the minimal consumption
needs.

To supplement these efforts, the credit scheme Integrated Rural Development Programme (IRDP)
was launched in 1980. But these supply side programs (ignoring the demand side of the economy)
aided by corruption and leakages, achieved little. Further, ‗The share of the formal financial sector
in total rural credit was 56.6%, compared to informal finance at 39.6% and unspecified sources at
3.8%. [RBI 1992]. Not only had formal credit flow been less but also uneven. The collateral and
paperwork based system shied away from the poor. The vacuum continued to be filled by the
village moneylender who charged interest rates of 2 to 30% per month . 70% of landless/marginal
farmers did not have a bank account and 87% had no access to credit from a formal source.

It was in this cheerless background that the Microfinance Revolution occurred worldwide. In India
it began in the 1980s with the formation of pockets of informal Self-help Groups (SHG) engaging
in micro activities financed by Microfinance. But India‘s first Microfinance Institution
‗Shri Mahila SEWA Sahkari Bank was set up as an urban co-operative bank, by the Self Employed
Women‘s Association (SEWA) soon after the group (founder Ms. Ela Bhatt)was formed in 1974.

The first official effort materialized under the direction of NABARD.(National Bank For
Agriculture And Rural Development).The Mysore Resettlement and Development Agency

(MYRADA) sponsored project on ―Savings and Credit Management of SHGs was partially
financed by NABARD during 1986-87(4) Section II: MFIs, Self Help Groups , Income Generation
and Women Empowerment Under the microfinance programme, loans are extended to the ‗Self
Help Groups (SHG)‘ who pool a part of their income into a common fund from which they can
borrow. The members of the group decide on the minimum amount of deposit which ranges from
Rs 20 to Rs 100 per month depending upon the size of the group. The group funds are deposited
with a Micro Finance Institution (MFI) against which they usually lend (The deposits are usually
placed with a bank by the MFI) at a credit deposit ratio of 4:1 but the ratio improves with account
performance record i.e. prompt repayment of loans. The group fund is the way ‗micro savings‘are
enforced, though it may seem like collateral. The loan ticket sizes are usually Rs 2000/- to Rs
15,000/-.

The MFIs stress on asset creation by the SHGs and extend loans for production and provides
training for the same. If any member needs credit beyond the stipulated limits they are allowed to
draw from group funds and the amount is settled in the periodic (monthly) group meetings. SHGs
consisting of poor members with identical socioeconomic backgrounds are usually more sensitive
to the credit needs of the poor. Though loan repayment is a joint liability of the group but, in
reality, individual liability is stressed upon. Maintaining group reputation leads to the application of
tremendous peer pressure.

Loans obtained from MFIs are utilized in agriculture and small businesses. Independent incomes
and modest savings have made women self-confident and helped them to fight poverty and
exploitation.

In India and other Asian countries the majority of SHGs consist of women because, in these
countries, Self-Employment through Microfinance was perceived as a powerful tool for emancipation
of women. It has been observed that gender equality is a necessary condition for economic
development. The World Bank reports that societies that discriminate on the basis of gender are in
greater poverty, have slower economic growth, weaker governance, and lower living standards.
REVIEW OF LITERATURE
Kumar Vipin et. al. (2015) study concluded that the SHG’s and MFI’s are playing a vital role in delivery of
microfinance services which leads development of poor and low income people in India. However, Slow
progress of graduation of SHG members, poor quality of group functioning, dropout of members from groups
etc., have also been reported various study findings in different parts of the country, which
need to be taken into account while designing the road map for the next phase of the SHG programme.
Nikita (2014) study concludes that first time in the year 2012-13 after the launch of SHGs BLP there is a decline
in the number of S HGs who’s saving linked with banks. The study also finds out there was growth in the
loan outstanding of SHG and which was responsible for increases in NPAs. At last it is found out that the major
share belongs to commercial banks when the agency wise loan issued to MFI. He suggested that steps should
be taken to improve the performances of programs launched under Microfinance time to time. Mahanta et.
al. (2012) Study revealed that lending to the poor through microcredit is not the end of the problem but
beginning of a new era. If effectively handled, it can create miracle in the field of poverty Alleviation. But it
must be bundled with capacity building programs. Government cannot abdicate its Responsibility of social
and economic development of poor and downtrodden. The absence of any special skills with the clients of
microcredit, the fund is being used in consumption and procurement of non-productive assets. Hence it is
very important to provide skills development training program like handicraft, weaving, carpentry, poultry,
goat rearing, masonry, bees farming, vegetable farming and many other agricultural and non-agricultural
training. Government has to play proactive role in this case. People with some special skills have to be given
priority in lending microcredit. These clients should also be provided with , post loan technical and professional
aid for success of their microenterprises. If government and MFIs act together then microcredit can play a great
role in poverty alleviation. Maruthi Ram Prasad, Sunitha and Laxmi Sunitha (2011) conducted a study on
Emergency and Impact of Micro-Finance on Indian Scenario. After the pioneering efforts by Government,
Banks, NGOs, etc the microfinance scene in India has reached in take off stage. An attempt could be initiated to
promote a cadre of new generation micro-credit leaders in order to strengthen the emergence of Micro-Finance
Institution (MFIs), so as to optimize their contribution towards the growth of the sector and poverty alleviation.
Each Indian state could consider forming multi-party working group to meet with microfinance leaders
and have a dialogue with them about how the policy environment could be made more supportive and to clear
up misperceptions. With one state leading the way, we need to build on a successful model. By unleashing the
entrepreneurial talent of the poor, we will slowly but surely transform India in ways we can only begin.
Idowu Friday Christopher (2010) conducted a study to find the Impact of Microfinance on Small and Medium-
Sized Enterprises in Nigeria. The fundamental objective of this study is to assess the impact of Microfinance on
Small and Medium Enterprises (SMEs) in Nigeria. Simple random sampling technique was employed in
selecting the 100 SMEs that constituted the sample size of the research. Structured questionnaire was designed
to facilitate the acquisition of relevant data which was used for analysis. Descriptive statistics which involves
simple percentage graphical charts and illustrations was tactically applied in data presentations and analysis.
The findings of the study reveal that significant number of the SMEs benefitted from the MFIs loans even
though only few of them were capable enough to secure the required amount needed. Interestingly, majority of
the SMEs acknowledge positive contributions of MFIs
loans towards promoting their market share, product innovation achieving market excellence and the overall
economic company competitive advantage. Other than tax incentives and financial supports, it is recommended
that Government should try to provide sufficient infrastructural facilities such as electricity, good road
network and training institutions to support SMEs in Nigeria.

Anand Kumar, T.S.; Praseeda, S.and Jeyanth K. N.(2008) 11 explained in his paper titled "Operational
guidelines for sustainable housing micro-finance in India" that housing micro- finance is emerging globally as
an important financial activity to help alleviate the housing needs of economically vulnerable people. Micro-
finance institutions (MFIs) planning to include housing product must carefully assess whether they have the
management and technical capacity to do so. The purpose of this paper is to give practical guidance to MFIs
in adopting the housing programme, in addition to their existing line of micro-finance services. The paper
finds that MFIs should also ensure that housing micro-finance suits their strategy from institutional and
financial perspectives.

Gordon, A.N. and others (2011)12 this paper aims to examine links between women's access to micro-
finance and how they use maternal healthcare services in sub-Saharan Africa (SSA).It is found that improved
access to micro-finance by women, combined with education may enhance maternal health service uptake.

Kamath, R. and Srinivasan, R. (2009) 13 Grameen replicators in India, using a for-profit Non- Banking
Finance Company legal form, have grown rapidly in terms of client numbers. Loan sizes are relatively small
compared to per capita income, while portfolio quality was until recently very high. There is evidence in field
of multiple borrowing, with clients borrowing simultaneously from multiple sources including micro-finance
institutions. We build a model of the microfinance sector that explains why such multiple borrowings result
optimally in small loan sizes and high portfolio quality.

Fields, G.S. (2010)14 this article is based on Fields (forthcoming) and on NCEUS (2009). The first part of the
paper about global poverty and how the world‘s poor work. As many as six-and- a-half times the number of
the unemployed are the working poor, which indicates that the world has on employment problem. So does
India. The second part of the paper is about combating poverty in India and Internationally. The policies
discussed here are workplace protections, harnessing the energies of the private sector, economic growth,
labour market policies for generating more paid employment, the raising self-employment earnings.

Fe Bureau (2009)15 the population living in poverty could fall to 6% in 2025 if aggressive reforms are
implemented, the report suggested. The country need four transition to change the labour market and speed up
poverty removal, these are farm to non-farm, rural to urban, unorganized to organized and subsistence self-
employment to decent wage employment. The report further added that 60% of country‘s workforce is
engaged in agriculture, generating 18% of the gross domestic product. Agriculture condemns many Indian
farmers to poverty because of low productivity. The key step that the country should take to enable the
transition from farm to non-farm employment is to move public expenditure from input subsidies like
fertilizers, seeds, power and water that benefit only large farmers to rural infrastructure.

EVOLUTION OF MICROFINANCE IN INDIA

The evolution of Indian Microfinance sector can be broadly divided into four distinct phases:
Phase 1: The Cooperative Movement (1900-1960)
During this phase, credit cooperatives were vehicles to extend subsidized credit to villages under
government sponsorship.
Phase 2: Subsidized Social Banking (1960s - 1990)
With failure of cooperatives, the government focused on measures such as nationalization of Banks,
expansion of rural branch networks, establishment of Regional Rural Banks (RRBs) and the setting up of apex
institutions such as the National Bank for Agriculture and Rural Development (NABARD) and the Small Scale
Industries Development Bank of India (SIDBI), including initiation of a government sponsored Integrated
Rural Development Programme (IRDP). While these steps led to reaching a large population, the period was
characterized by large-scale misuse of credit, creating a negative perception about the credibility of micro
borrowers among bankers, thus further hindering access to banking services for the low-income people.
Phase 3: SHG-Bank Linkage Program and Growth of NGO-MFIs (1990 - 2000)
The failure of subsidized social banking triggered a paradigm shift in delivery of rural credit with
NABARD initiating the Self Help Group (SHG) Bank Linkage Programme (SBLP), aiming to link
informal women's groups to formal banks. The program helped increase banking system outreach to otherwise
unreached people and initiate a change in the bank's outlook towards low-income families from 'beneficiaries' to
'customers'. This period was thus marked by the extension of credit at market rates. The model generated a lot of
interest among newly emerging Microfinance Institutions (MFIs), largely of non-profit origin, to collaborate
with NABARD under this program. The macroeconomic crisis in the early 1990s that led to introduction of the
Economic Reforms of 1991 resulted in greater autonomy to the financial sector. This also led to emergence of
new generation private sector banks that would become important players in the microfinance sector a decade
later.
Phase 4: Commercialization of Microfinance
The First Decade of the New Millennium Post reforms, rural markets emerged as the new growth drivers for
MFIs and banks, the latter taking interest in the sector not only as part of their corporate social
responsibility but also as a new business line. On the demand side, NGO-MFIs increasingly began
transforming themselves into more regulated legal entities such as Non-Banking Finance Companies
(NBFCs) to attract commercial investment. The microfinance sector as it exists today essentially consists of two
predominant delivery models the SBLP and MFIs. Four out of five microfinance clients in India are women.
CONCEPT OF MICROFINANCE
Microfinance enables the poor and excluded section of people in the society who do not have an access to
formal banking to build assets, diversity livelihood options and increase income, and reduce their
Vulnerability to economic stress. In the past, it has been experienced that the provision for financial Products
and services to poor people by MFIs can be practicable and sustainable as MFIs can cover their full costs
through adequate interest spreads and by operating efficiently and effectively.
Microfinance is not a magic solution that will propel all of its clients out of poverty. But various impact
studies have demonstrated that microfinance is really benefiting the poor households (Littlefield and
Rosenberg, 2004). The Asian Development Bank (2000) defines microfinance as the provision of broad
range of services such as savings, deposits, loans, payment services, money transfers and insurance to
poor and low income households and their micro-enterprises. This definition of microfinance is not
Restricted to the below poverty line people but it includes low income households also. The taskforce on
Supportive Policy and Regulatory Framework for Microfinance constituted by NABARD defined
Microfinance as “the provision of thrift, saving, credit and financial services and products of very small amount
to the poor’s in rural, semi urban and urban areas for enabling them to raise their income level and improve
their standard of living.” (Sen, 2008)
Microfinance is defined as a development tool that grants or provides financial services and products such as
very small loans, savings, micro-leasing, micro-insurance and money transfer to assist the very or
Exceptionally poor in expanding or establishing their businesses (Robinson, 1998). In addition to financial
intermediation, some MFIs provide social intermediation services such as the formation of groups,
development of self-confidence and the training of members in that group on financial literacy and
Management (Ledgerwood, 1999). There are different providers of microfinance (MF) services and some
of them are; Non-Governmental Organizations (NGOs), savings and loans cooperatives, credit unions,
government banks, commercial banks or non-banking financial institutions. The target group of MFIs are Self-
employed low income entrepreneurs who are; traders, seamstresses, street vendors, small farmers, hairdressers,
rickshaw drivers, artisans blacksmith etc (Ledgerwood, 1999).
Features of Microfinance
 It is an essential part of rural finance.
 It deals in small loans.
 It basically caters to the poor households.
 It is one of the most effective and warranted Poverty Alleviation Strategies.
 It supports women participation in electronic activity.
 It provides an incentive to grab the self-employment opportunities.
 It is more service-oriented and less profit oriented.
 It is meant to assist small entrepreneur and producers.
 Poor borrowers are rarely defaulters in repayment of loans as they are simple and God-fearing.
Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of
Credit services to poor clients. Micro credit and micro-finance both are different. Micro credit is a small
Amount of money, given as a loan by a bank or any legally registered institution, whereas, Micro-finance
Includes multiple services such as loans, savings, insurance, transfer services, micro credit loans, etc. for Poor
people.
MICROFINANCE DELIVERY MODELS IN INDIA
The non-availability of credit and banking facilities to the poor and underprivileged segments of the
Society has always been a major concern in India. The Government and the Reserve Bank have taken
several initiatives, from time to time, such as nationalisation of banks, prescription of priority sector
lending norms and concessional interest rate for the weaker section of society. It was, however, realised
that further direct efforts were required to address the credit needs of poor people. In response to this
requirement, the Micro finance movement started in India with the introduction of SHG bank linkage
programme (SBLP) in the early 1990s. At present, there are mainly two models for delivery of
Microfinance in India:
1. SHG – Bank Linkage Programme (SBLP)
A SHG is a small group of about 10-20 persons from a homogeneous class of rural and urban poor which
promoted savings among members and used these resources for meeting their credit needs The group is
democratically formed and elects its own leaders. The vital features of SHGs are it consists of members
belonging to the same community or society and having common economic goal. In this model, the informal
SHGs are credit linked with the formal financial institutions. The SHG-Bank Linkage Model has emerged as a
dominant model in terms of number of borrowers and loans outstanding. This model is
flexible, independence creating, and imparts freedom of saving and borrowing according to the
Requirements of group members. Due to widespread rural bank branch network, the SHG-BLM is very
suitable to the Indian context. Microfinance movement started in India with the introduction of SHG-
Bank Linkage Programme (SHG BLP). The programme uses SHGs as an intermediation between the
banks and the rural poor to help in reducing transaction costs for both the banks and the rural clients.
Banks provide the resources and bank officials/NGOs/ government agencies organise the poor in the form of
SHGs. Under this programme, loans are provided to the SHGs with three different methodologies:
 Model I: SHGs Formed and Financed by Banks: In this model, banks themselves take up the
work of forming and nurturing the groups, opening their savings accounts and providing them
bank loans.
 Model II: SHGs Formed by Agencies Other than Banks, but Directly Financed by Banks: In this model,
NGOs and other formal agencies in the field of microfinance facilitate organising,
forming and nurturing of SHGs and train them in thrift and credit management. The banks
directly give loans to these SHGs.
 Model III: SHGs Financed by Banks Using Other Agencies as Financial Intermediaries: This is the
model where the NGOs take on the additional role of financial intermediation along with the
formation of group. In areas where the formal banking system faces constraints, the NGOs are
encouraged to form groups and to approach a suitable bank for bulk loan assistance. This method
is generally used by most of the NGOs having small financial base.

MODELS OF MICROFINANCE
Grameen Model
It is one of the successful model of microfinance. The model initiated through a group
of five members. A compulsory contribution will made to group savings & insurance fund.
Each member maintains their individual savings & loan account in the bank after contributing
to the group, the members will receive individual loan from the bank. The responsibility of
Repayment lies on the individual. Loans are provided for a period of 6 months to 1 year & the
repayment has to be made weekly. A period visit is conducted by the bank officials to
monitor the records & the financial transactions. This model is being adopted in 40 countries
in Asia, Africa & Latin America.

Joint Liability Group Model

The members in this groups are from 4 to 10 who form a group. The group members
can avail bank loan against mutual guarantee & there is no condition of their own saving
fund. All members jointly are in a contract making jointly liable for repayment of loans taken
by all members. This model is followed in many microfinance enterprises in India. The
progress of empowerment in this model are very limited. Many other countries are also
following this model.
Individual Lending Model
The individual can get loans by themselves without being affiliated in group.
Financial institutions have to closely monitor the status of individual on the status of
borrowings. It is most successful for larger, urban – based, production – based business. This
model is used in many developing countires such as Egypt, Indonesia, Senegal, India.
The Group Approach
The entire financial process in group approach is monitored by financial institutions
The activities such as savings, loans, repayments are managed at group level. There may be
10 – 20 members who will have regular savings which will be pooled up as common fund.
The loans are issued by financial institutions in the name of the group. The repayment
schedule is made by the financial institutions to the group & field staff periodically visit&
monitor the process of repayment. In India this method is known as SHG Bank Linkage
Programme which is a very popular model being followed.

Village Banking Model

This model was developed in Bolvia during 1980s by the Foundation for International
Community Assistance. A village bank is developed by forming 30 to 100 members who
have low income & seek to improve their livelihood. The MFIs lend capital to the bank & in
turn which lends money to the members. Loans amounts are linked to the aggregate amount
saved by individual bank members. Loans are paid in weekly installments.
SELF HELP GROUP MODEL
The SHGs are informal & homogenous groups of 10 to 20 members each. These
groups are formed by bank officials, NGOs & other institutions at the village level. The
group is given a name & each group has a leader, cashier & secretary being elected by the
group members to manage the group affairs. The members indulge in voluntary savings on
regular basis. The groups members decide mutually on the amount of savings to be deposited
in the group account. These amount are used for rotational internal loan on low interest basis
2. Micro Finance Institutions (MFIs)
The MFI model has also gained momentum in India in the recent past. MFI model is found worldwide
whereas the SHG-BLM model is an Indian model. In MFI model MFIs borrow large amount of funds
from the apex financial institutions, donors and banks for on-lending to the individuals or groups. These
MFIs provide financial services to the individuals or to the groups like SHGs. These institutions lend
through the concept of Joint Liability Group (JLG). A JLG is an informal group comprising of 5 to 10
individual members who come together for the purpose of availing bank loans either individually or through
the group mechanism against a mutual guarantee. MFIs in India exist in a variety of forms like trusts registered
under the Indian Trust Act, 1882/Public Trust Act, 1920; societies registered under the Societies Registration
Act, 1860; Cooperatives registered under the Mutually Aided Cooperative Societies Acts of the States; and
nonbanking financial companies (NBFC)-MFIs, which are registered under Section 25 of the Companies Act,
1956 or NBFCs registered with the Reserve Bank. These MFIs are scattered across the country and due to the
multiplicity of registering authorities

ROLE AND IMPORTANCE OF MICROFINANCE

According to the research done by the World Bank, India is home to almost one third of the worlds poor
(Surviving on an equivalent of one dollar a day). Though many central government and state government
Poverty alleviation programs are currently active in India, microfinance plays a major contributor to
Financial inclusion. In the past few decades it has helped out remarkably in eradicating poverty. Reports
show that people who have taken microfinance have been able to increase their income and hence the
standard of living. Thus Microfinance plays a major role in upliftment of Indian economy in following
ways:-
 Credit to Rural Poor:-Usually rural sector depends on non-institutional agencies for their financial
requirements. Micro financing has been successful in taking institutionalized credit to the doorstep of
poor and have made them economically and socially sound.
 Poverty Alleviation:-Due to micro finance poor people get employment. It also helps them to
improve their entrepreneurial skills and encourage them to exploit business opportunities. Employment
increases income level which in turn reduces poverty.
 Women Empowerment:- Normally more than 50% of SHGs are formed by women. Now they have greater
access to financial and economical resources. It is a step towards greater security for women. Thus microfinance
empowers poor women economically and socially.
 Economic Growth:-Finance plays a key role in stimulating sustainable economic growth. Due to
microfinance, production of goods and services increases which increases GDP and contributes to
economic growth of the country.
 Mobilisation of Savings:-Microfinance develops saving habits among people. Now poor people with
meager income can also save and are bankable. The financial resources generated through savings and micro
credit obtained from banks are utilised to provide loans and advances to its members. Thus
microfinance helps in mobilisation of savings.
 Development of Skills:-Micro financing has been a boon to potential rural entrepreneurs. SHGs
encourage its members to set up business units jointly or individually. They receive training from
supporting institutions and learn leadership qualities. Thus micro finance is indirectly responsible for
development of skills.
 Mutual Help and Co-operation:-Microfinance promotes mutual help and co-operation among
members. The collective effort of group promotes economic interest and helps in achieving
socioeconomic transition.
 Social Welfare:- With employment generation the level of income of people increases. They may go for
better education, health, family welfare etc. Thus micro finance leads to social welfare or betterment of society.

Micro-finance contributes to social & economic development of the nation in the following
ways:
1. Poor people cannot access banking services due to their meagre income & inability to
h&le banking procedures & documentation. It is through micro-finance that a wide
range of financial services such as deposits, loans, payment services, money transfers
& insurance can be provided to the poor & low income households & their micro-
enterprises.
2. Micro-finance institutions, through their NGOs, develop saving habits among poor
people. The financial resources generated through savings & micro credit obtained
from banks are utilised to provide loans & advances to the members of the Self Help
Groups (SHGs). Thus, microfinance institutions help in mobilisation of savings &
using the same for the welfare of its members.
3. Loans from the normal banking system require collateral or counter guarantee which
poor people cannot offer & therefore, cannot get loan. Again, high interest rates &
procedural & documentation formalities act as a deterrent to poor people accessing
banks for loans. Microfinance does away with all these obstacles & provides finance
to rural & poor population on easy terms.
4. Micro-finance allows the poorer sections of the society to get loans at cheaper rates
which helps them to start their businesses on a small scale, grow their business & get
out of poverty & be independent & self-sufficient. It helps in creating long-term
financial independence among the poorer sections of the society & therefore,
promotes self-sufficiency among them.
5. Micro-finance is provided through the intermediation of Self Help Groups (SHGs).
More than 50% of the Self Help Groups (SHGs) are formed by women. Now, they
have greater access to financial & economical resources. It is a step towards greater
security for women. Thus, micro-finance empowers poor women economically &
socially.

FEATURES OF MICROFINANCE
 It is an essential part of rural finance.
 It deals in small loans.
 It basically caters to the poor households.
 It is one of the most effective & warranted Poverty Alleviation Strategies.
 It supports women participation in electronic activity.
 It provides an incentive to grab the self-employment opportunities.
 It is more service-oriented & less profit oriented.
 It is meant to assist small entrepreneur & producers.
 Poor borrowers are rarely defaulters in repayment of loans as they are simple & God-
 fearing.
 India needto establish several Microfinance Institutions.

PRINCIPLES OF MICRO FINANCE

Microfinance is considered as a tool for socio-economic development, and can be clearly distinguished
 from charity. Families who are destitute, or so poor they are unlikely to be able to generate the cash flow
required to repay a loan, should be recipients of charity. Others are best served by financial institutions.
Some principles that summarize a century and a half of development practice were encapsulated in 2004
by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight leaders at the G8
Summit on June 10, 2004 are given below

 Poor people need not just loans but also savings, insurance and money transfer services.

 Microfinance must be useful to poor households: helping them raise income, build up assets and/or
cushion themselves against external shocks.

 "Microfinance can pay for itself. Subsidies from donors and government are scarce and
uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.

 Microfinance means building permanent local institutions.

 Microfinance also means integrating the financial needs of poor people into a country's mainstream
financial system.

 The job of government is to enable financial services, not to provide them.

 Donor funds should complement private capital, not compete with it.

 The key bottleneck is the shortage of strong institutions and managers.

 Donors should focus on capacity building.

 Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their
costs, which chokes off the supply of credit.

 Microfinance institutions should measure and disclose their performance – both financially and
socially.

TYPES OF MICRO FINANCE PRODUCTS

BENEFITS OF MICRO FINANCE
CHALLENGES OF MICRO FINANCE
The obstacles or challenges to building a sound commercial microfinance industry include:
 Inappropriate donor subsidies
 Poor regulation and supervision of deposit-taking MFIs
 Few MFIs that meet the needs for savings, remittances or insurance
 Limited management capacity in MFIs
 Institutional inefficiencies
 Need for more dissemination and adoption of rural, agricultural microfinance methodologies
Traditionally, banks have not provided financial services, such as loans, to clients with little or no cash
income. Banks incur substantial costs to manage a client account, regardless of how small the sums of
money involved. For example, although the total gross revenue from delivering one hundred loans worth
$1,000 each will not differ greatly from the revenue that results from delivering one loan of $100,000, it
takes nearly a hundred times as much work and cost to manage a hundred loans as it does to manage one.
The fixed cost of processing loans of any size is considerable as assessment of potential borrowers, their
repayment prospects and security; administration of outstanding loans, collecting from delinquent
borrowers, etc., has to be done in all cases. There is a break-even point in providing loans or deposits below
which banks lose money on each transaction they make. Poor people usually fall below that breakeven point.
A similar equation resists efforts to deliver other financial services to poor people.
In addition, most poor people have few assets that can be secured by a bank as collateral. This means that the
bank will have little recourse against defaulting borrowers. Because of these difficulties, when poor people
borrow they often rely on relatives or a local moneylender, whose interest rates can be very high. An
analysis of 28 studies of informal moneylending rates in 14 countries in Asia, Latin America and Africa
concluded that 76% of moneylender rates exceed 10% per month, including 22% that exceeded 100% per
month. Moneylenders usually charge higher rates to poorer borrowers than to less poor ones. While
moneylenders are often demonized and accused of usury, their services are convenient and fast, and they can
be very flexible when borrowers run into problems. Hopes of quickly putting them out of business have
proven unrealistic, even in places where microfinance institutions are active. Although much progress has
been made, the problem has not been solved yet, and the overwhelming majority of people who earn less
than $1 a day, especially in the rural areas, continue to have no practical access to formal sector finance.
Microfinance has been growing rapidly with $25 billion currently at work in microfinance loans. It is
estimated that the industry needs $250 billion to get capital to all the poor people who need it. The industry
has been growing rapidly, and concerns have arisen that the rate of capital flowing into microfinance is a
potential risk unless managed well. As seen in the State of Andhra Pradesh, these systems can easily fail.
Some reasons being lack of use by potential customers, over-indebtedness, poor operating procedures,
neglect of duties and inadequate regulations
CHALLENGES TO MICRO FINANCE INSTITUTIONS
Although the importance of microfinance in the process of poverty eradication is realized, it faces multiple
problems. This is because offering credit to the poor is a complicated process and the sector is still in its
experimental stage.
PERCEIVED HIGH RISK OF MICRO ENTREPRENEURSHIP AND SMALL BUSINESSES
Micro entrepreneurs usually have no collateral to offer to microfinance providers against loans, they usually
lack an alternate source of income, and have little, if any, formal education or training in the area of their
business. As a result, commercial banks attribute a high credit risk to micro entrepreneurs and steer clear of
this sector.
Microfinance institutes (MFIs) are compelled to compensate for this risk by charging interest rates on loans
(read 10 determinants of interest rates in microfinance). Fortunately, the challenge can be resolved through
the idea of group lending (social collateral against loans) which ensures good repayment rates.
HIGH COSTS INVOLVED IN SMALL TRANSACTIONS/ MICRO LENDING
The small size of micro enterprises increases the transaction cost for MFIs because they cannot process loans
in bulk (unless good management information systems are in place). This denies MFIs the benefit of
economies of scale; hence, they are forced to cover their costs through high interest rates on loans (read 4
ways to control high interest rates).
According to a study conducted by Asian Development Bank, microfinance providers in the Asia-Pacific
region charge interest rates on micro-sized loans ranging from 30 to 70% a year, which is much higher than
rates offered by commercial banks (Fernando, 2006). However, there are instances where the interest rates
charged were too low for the MFIs’ sustainability. There is, however, possible solutions to this problem – by
improving the technology model used by microfinance institutes, their operational costs can be significantly
lowered and efficiencies may be gained during automated loan processing.
LACK OF DEBT AND EQUITY FUNDS FOR MFIs TO PASS ON TO THE POOR
Capital availability for microfinance is hardly a problem owing to the rapid growth in the microfinance
sector, which has been fueled by attention from the media and development agencies. Even though there are
plenty of financing options available for MFIs, there is an emerging shortage of money because of the
current financial crisis across the globe. Another reason for this shortfall is the lack of awareness of funding
sources by MFI managers.
DIFFICULTY IN MEASURING THE SOCIAL PERFORMANCE OF MFIs
Microfinance is delivering the economic returns its proponents promised, but there are only a handful of
tools available that measure the social return of loan programs for the poor. To add to the problem, the tools
use proxies to estimate the amount of poverty and social change surrounding micro entrepreneurs. This
makes the gathering of funds a challenge because donors may question the actual impact made my
microfinance.
MIXING CHARITY WITH BUSINESS
 Since credit without strict discipline is nothing but charity (Professor Yunus), if microfinance providers fail
to protect themselves against loan delinquency, they will, in effect, prioritize social objectives at the expense
of financial sustainability. Improper delinquency management is a result of inadequate implementation of
corporate governance principles, and formal as well as semi-formal microfinance providers often suffer from
this. As a result, looser controls over microfinance deals will lead to higher default rates. Read more about
the difficulty inmixing charity with business.
LACK OF CUSTOMIZED SOLUTIONS FOR THE POOR
Inappropriate targeting of poor households by microfinance programs is a common problem because MFIs
fail to understand the varied needs of micro entrepreneurs. MFIs must spend time in the field with their
clients and his/her business, and then use this research to develop customized microfinance tools for each
micro entrepreneur. Generalized solutions may work for large companies dealing dealing with large
homogeneous customer groups, but microfinance providers need to serve the varied needs of individuals in
each micro market segments.
LACK OF MICROFINANCE TRAINING FOR HUMAN RESOURCE IN MICROFINANCE
INSTITUTIONS
Working in the microfinance sector is a different ball game compared to the traditional financial sector. For
instance, microfinance officers and volunteers need to talk a different language, build lasting relationships
with individual micro entrepreneurs, understand the unique needs of the poor, evaluate the borrower’s
sustainability, and grasp the cultural nuances of the borrower’s communities It’s no surprise microfinance
providers need special training to ensure they avoid problems such as intimidating or under-serving clients.
POOR DISTRIBUTION SYSTEM OF MICROFINANCE INSTITUTIONS AND LACK OF
INFORMATION ABOUT MICROFINANCE INVESTMENT OPPORTUNITIES
Firstly, microfinance providers may be complacent with their client base in certain cities and feel no
economic need (ignoring the social need to eradicate poverty) to spread out their distribution system to cater
to the poorest of households. Secondly, micro entrepreneurs are sprawled over large geographical areas,
often in remote places, which often make them inaccessible to MFIs. This is a slight problem because even
though there are over 10,000 MFIs around the world, they may not know about the existence and needs of
certain micro entrepreneurs.
DUAL MISSION OF MICROFINANCE INSTITUTIONS TO BE FINANCIALLY SUSTAINABLE
AS WELL AS DEVELOPMENT ORIENTED
Microfinance providers tend to forget their main objective is social development and not profit
creation. The principle of ‘one micro entrepreneur – one micro loan’ is overlooked by profit-
hungry MFIs who end up targeting the same individual for many loans and cause multiple
borrowing (also known as credit pollution). This is a major problem because at the end of the
day, that individual gets burdened by mounting interest payments and is pushed deeper into the
folds of poverty. Poor governance on the side of MFIs as well as the micro entrepreneur is to
blame for this.
All these problems broadly fall into either financial or operational in nature and we can therefore
see that they should not be impossible to solve as the microfinance sector moves towards it
optimal performance level in the next several years. In other words, despite these problems, the
prospects of microfinance are quite bright. In the coming weeks, we will look at potential
solutions to all these problems, which aren’t difficult to adopt (a couple have been already been
mentioned above).

SIGNIFICANCE OF THE STUDY

At least in India, there does not seem to be any working model of analyzing the financial performance
and Thereby sustaining of microfinance institutions. This problem is compounded by the lack of a
committed Legislation on working and management of microfinance institutions. The lack of a
regulatory mechanism for financial disclosures by microfinance institutions also abets the problem.
The present study is an attempt to study the importance of microfinance and to analyse the
performance of microfinance institutions operating in nagpur. It assumes significance because it is
imperative that these institutions be run efficiently given the fact that they are users of marginal
and scarce capital and the intended beneficiaries are the marginalized sections of society. MFIs
must be able to sustain themselves financially in order to continue pursuing their lofty objectives,
through good financial performance.
CHALLENGES OF MICRO FINANCE
The obstacles or challenges to building a sound
commercial microfinance industry include:
Traditionally, banks have not provided financial
services, such as loans, to clients with little or no
cash income. Banks incur substantial costs to
manage a client
account, regardless of how small the sums of
money involved. For example, although the total
gross revenue from delivering one hundred loans
worth $1,000
each will not differ greatly from the revenue that
results from delivering one loan of $100,000, it
takes nearly a hundred times as much work and
cost to manage
a hundred loans as it does to manage one. The
fixed cost of processing loans of any size is
considerable as assessment of potential borrowers,
their repayment
prospects and security; administration of
outstanding loans, collecting from delinquent
borrowers, etc., has to be done in all cases. There
is a break-even point in
providing loans or deposits below which banks
lose money on each transaction they make.
Poor people usually fall below that breakeven
point. A similar
equation resists efforts to deliver other financial
services to poor people.
In addition, most poor people have few assets
that can be secured by a bank as collateral. This
means that the bank will have little recourse
against defaulting
borrowers. Because of these difficulties, when
poor people borrow they often rely on relatives or
a local moneylender, whose interest rates can be
very high. An
analysis of 28 studies of informal moneylending
rates in 14 countries in Asia, Latin America and
Africa concluded that 76% of moneylender rates
exceed 10% per
month, including 22% that exceeded 100% per
month. Moneylenders usually charge higher
rates to poorer borrowers than to less poor
ones. While
moneylenders are often demonized and accused
of usury, their services are convenient and fast,
and they can be very flexible when borrowers
run into
problems. Hopes of quickly putting them out of
business have proven unrealistic, even in
places where microfinance institutions are active.
Although much
progress has been made, the problem has not
been solved yet, and the overwhelming majority
of people who earn less than $1 a day, especially
in the rural
areas, continue to have no practical access to
formal sector finance. Microfinance has been
growing rapidly with $25 billion currently at
work in microfinance
loans. It is estimated that the industry needs $250
billion to get capital to all the poor people who
need it. The industry has been growing rapidly,
and concerns
have arisen that the rate of capital flowing into
microfinance is a potential risk unless managed
well. As seen in the State of Andhra Pradesh, these
systems can
easily fail. Some reasons being lack of use by
potential customers, over-indebtedness, poor
operating procedures, neglect of duties and
inadequate regulation

INTERNATIONAL JOURNAL
OF RESEARCH IN
COMMERCE &
MANAGEMENT
A Monthly Double-Blind Peer Reviewed
(Refereed/Juried) Open Access International e-
Journal - Included in the International Serial
Directories
http://ijrcm.org.in/
48
CHALLENGES OF MICRO FINANCE
The obstacles or challenges to building a sound
commercial microfinance industry include:
Traditionally, banks have not provided financial
services, such as loans, to clients with little or no
cash income. Banks incur substantial costs to
manage a client
account, regardless of how small the sums of
money involved. For example, although the total
gross revenue from delivering one hundred loans
worth $1,000
each will not differ greatly from the revenue that
results from delivering one loan of $100,000, it
takes nearly a hundred times as much work and
cost to manage
a hundred loans as it does to manage one. The
fixed cost of processing loans of any size is
considerable as assessment of potential borrowers,
their repayment
prospects and security; administration of
outstanding loans, collecting from delinquent
borrowers, etc., has to be done in all cases. There
is a break-even point in
providing loans or deposits below which banks
lose money on each transaction they make.
Poor people usually fall below that breakeven
point. A similar
equation resists efforts to deliver other financial
services to poor people.
In addition, most poor people have few assets
that can be secured by a bank as collateral. This
means that the bank will have little recourse
against defaulting
borrowers. Because of these difficulties, when
poor people borrow they often rely on relatives or
a local moneylender, whose interest rates can be
very high. An
analysis of 28 studies of informal moneylending
rates in 14 countries in Asia, Latin America and
Africa concluded that 76% of moneylender rates
exceed 10% per
month, including 22% that exceeded 100% per
month. Moneylenders usually charge higher
rates to poorer borrowers than to less poor
ones. While
moneylenders are often demonized and accused
of usury, their services are convenient and fast,
and they can be very flexible when borrowers
run into
problems. Hopes of quickly putting them out of
business have proven unrealistic, even in
places where microfinance institutions are active.
Although much
progress has been made, the problem has not
been solved yet, and the overwhelming majority
of people who earn less than $1 a day, especially
in the rural
areas, continue to have no practical access to
formal sector finance. Microfinance has been
growing rapidly with $25 billion currently at
work in microfinance
loans. It is estimated that the industry needs $250
billion to get capital to all the poor people who
need it. The industry has been growing rapidly,
and concerns
have arisen that the rate of capital flowing into
microfinance is a potential risk unless managed
well. As seen in the State of Andhra Pradesh, these
systems can
easily fail. Some reasons being lack of use by
potential customers, over-indebtedness, poor
operating procedures, neglect of duties and
inadequate regulations
CHALLENGES TO MICRO FINANCE
INSTITUTIONS
Although the importance of microfinance in the
process of poverty eradication is realized, it faces
multiple problems. This is because offering credit
to the poor
is a complicated process and the sector is still in
its experimental stage.
PERCEIVED HIGH RISK OF MICRO
ENTREPRENEURSHIP AND SMALL
BUSINESSES
Micro entrepreneurs usually have no collateral to
offer to microfinance providers against loans, they
usually lack an alternate source of income, and
have little, if
any, formal education or training in the area of
their business. As a result, commercial banks
attribute a high credit risk to micro entrepreneurs
and steer clear of
this sector.
Microfinance institutes (MFIs) are compelled
to compensate for this risk by charging
interest rates on loans (read 10 determinants
of interest rates in
microfinance). Fortunately, the challenge can be
resolved through the idea of group lending
(social collateral against loans) which ensures
good repayment
rates.
HIGH COSTS INVOLVED IN SMALL
TRANSACTIONS/ MICRO LENDING
The small size of micro enterprises increases the
transaction cost for MFIs because they cannot
process loans in bulk (unless good management
information
systems are in place). This denies MFIs the benefit
of economies of scale; hence, they are forced to
cover their costs through high interest rates on
loans (read 4
ways to control high interest rates).
According to a study conducted by Asian
Development Bank, microfinance providers in the
Asia-Pacific region charge interest rates on micro-
sized loans ranging
from 30 to 70% a year, which is much higher than
rates offered by commercial banks (Fernando,
2006). However, there are instances where the
interest rates
charged were too low for the MFIs’
sustainability. There is, however, possible
solutions to this problem – by improving the
technology model used by
microfinance institutes, their operational costs can
be significantly lowered and efficiencies may be
gained during automated loan processing.
LACK OF DEBT AND EQUITY FUNDS FOR
MFIs TO PASS ON TO THE POOR
Capital availability for microfinance is hardly a
problem owing to the rapid growth in the
microfinance sector, which has been fueled by
attention from the media
and development agencies. Even though there are
plenty of financing options available for MFIs,
there is an emerging shortage of money because of
the current
financial crisis across the globe. Another reason
for this shortfall is the lack of awareness of
funding sources by MFI managers.
DIFFICULTY IN MEASURING THE SOCIAL
PERFORMANCE OF MFIs
Microfinance is delivering the economic returns
its proponents promised, but there are only a
handful of tools available that measure the social
return of loan
programs for the poor. To add to the problem, the
tools use proxies to estimate the amount of
poverty and social change surrounding micro
entrepreneurs. This
makes the gathering of funds a challenge because
donors may question the actual impact made my
microfinance.
MIXING CHARITY WITH BUSINESS
Since credit without strict discipline is nothing but
charity (Professor Yunus), if microfinance
providers fail to protect themselves against loan
delinquency, they
will, in effect, prioritize social objectives at the
expense of financial sustainability. Improper
delinquency management is a result of inadequate
implementation
of corporate governance principles, and formal
as well as semi-formal microfinance providers
often suffer from this. As a result, looser
controls over
microfinance deals will lead to higher default
rates. Read more about the difficulty inmixing
charity with business.
LACK OF CUSTOMIZED SOLUTIONS FOR
THE POOR
Inappropriate targeting of poor households by
microfinance programs is a common problem
because MFIs fail to understand the varied
needs of micro
entrepreneurs. MFIs must spend time in the field
with their clients and his/her business, and then
use this research to develop customized
microfinance tools for
each micro entrepreneur. Generalized solutions
may work for large companies dealing dealing
with large homogeneous customer groups, but
microfinance
providers need to serve the varied needs of
individuals in each micro market segments.
LACK OF MICROFINANCE TRAINING FOR
HUMAN RESOURCE IN MICROFINANCE
INSTITUTIONS
Working in the microfinance sector is a different
ball game compared to the traditional financial
sector. For instance, microfinance officers and
volunteers need
to talk a different language, build lasting
relationships with individual micro entrepreneurs,
understand the unique needs of the poor, evaluate
the borrower’s
sustainability, and grasp the cultural nuances of
the borrower’s communities It’s no surprise
microfinance providers need special training to
ensure they avoid
problems such as intimidating or under-serving
clients.
POOR DISTRIBUTION SYSTEM OF
MICROFINANCE INSTITUTIONS AND LACK
OF INFORMATION ABOUT MICROFINANCE
INVESTMENT OPPORTUNITIES
Firstly, microfinance providers may be
complacent with their client base in certain
cities and feel no economic need (ignoring the
social need to eradicate
poverty) to spread out their distribution system to
cater to the poorest of households. Secondly,
micro entrepreneurs are sprawled over large
geographical
areas, often in remote places, which often make
them inaccessible to MFIs. This is a slight
problem because even though there are over
10,000 MFIs around the
world, they may not know about the existence and
needs of certain micro entrepreneurs.

INTERNATIONAL JOURNAL
OF RESEARCH IN
COMMERCE &
MANAGEMENT
A Monthly Double-Blind Peer Reviewed
(Refereed/Juried) Open Access International e-
Journal - Included in the International Serial
Directories
http://ijrcm.org.in/
49
DUAL MISSION OF MICROFINANCE
INSTITUTIONS TO BE FINANCIALLY
SUSTAINABLE AS WELL AS
DEVELOPMENT ORIENTED
Microfinance providers tend to forget their main
objective is social development and not profit
creation. The principle of ‘one micro entrepreneur
– one micro
loan’ is overlooked by profit-hungry MFIs who
end up targeting the same individual for many
loans and cause multiple borrowing (also
known as credit
pollution). This is a major problem because at the
end of the day, that individual gets burdened by
mounting interest payments and is pushed deeper
into the
folds of poverty. Poor governance on the side of
MFIs as well as the micro entrepreneur is to blame
for this.
All these problems broadly fall into either
financial or operational in nature and we can
therefore see that they should not be impossible
to solve as the
microfinance sector moves towards it optimal
performance level in the next several years. In
other words, despite these problems, the
prospects of
microfinance are quite bright. In the coming
weeks, we will look at potential solutions to all
these problems, which aren’t difficult to adopt (a
couple have been
already been mentioned above).
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
OBJECTIVES OF THE STUDY
1. To study the awareness level of the people of Micro Finance.

This study will focus on the awareness level of microfinance. That is whether people have heard
about microfinance, if yes, from where, and whether they are already a member of microfinance.

2. To find the awareness level of the urban poor people about the various schemes and
concept of Micro Finance.

This study will throw light on the awareness level of the people with respect to the various schemes
under micro finance. It will explain the various services and schemes in microfinance and the
provisions these schemes has for alleviating the urban poverty.

The hypothesis formulated for this particular research work is as follows

 Urban Poor people are aware of the concept of micro finance.

 People of Nagpur city are Aware about various schemes under micro finance.

Data Collection

Primary Data Collection

1) First of all a questionnaire has been designed for the DRDA (District Rural Development
Agency) to collect the policies and procedures of micro financing.

The officials of DRDA were interviewed for the structure of micro financing in the Nagpur city.

2) Then an interview was conducted with the DGM of Bank of India and Bank of Baroda to
collect the financing schemes of the various nationalized banks under micro financing as
well as

3) A questionnaire is being designed to collect the information from the people below poverty
line and people earning just above the poverty line residing in Nagpur city according to the
sample size.
 Secondary data Collection

1) Brochures of various banks were collected

2) Periodicals about Micro finance have been collected.

3) Data from the study of Linda Mayox have been collected from internet.

4) Various printed brochures from DRDA & guidelines of SGSY (Swarna Jayanti Gram
Swarojgar Yojana) scheme have been collected.

Population of the Study

Nagpur City
Sample size

100 people in random and 100 people who are associated to the various SHG‘s operating in
the Nagpur city. Total no. of respondents is 200.
Originality

1) This study is a mix of primary as well as secondary data.

2) More of research has been done in order to reach the every corner of the city to take down the
sample.

3) Some theory part is taken from the published data of various institutes.

Table 5.1 Reliability Statistics

Cronbach's Alpha N of Items

.830 13

Cronbach‘s Alpha got is .830. The research tool designed was questionnaire and it had 13 items.
The questionnaire was classified into three parts, as follows:

Table 5.2 Classification of Questionnaire

Part Name No. of items
I Respondent‘s profile 8
II SHG Awareness 3
III SHG services/schemes Awareness 2
TOTAL 13 items

Initially 800 questionnaires were distributed at the various slums like Padrapudi slum, Futala slum,
Jaitala slum, Katol Road slum, Savtribai Fule slum and the other slums in the Nagpur city. The
questionnaires were translated in Marathi for the convenience of the respondents, as the regional
language is Marathi and people converse in Marathi. Only 522 questionnaires could be received
back.

RESPONDENT’S PROFILE

Respondent‘s profile was explained by taking the following parameters.

1 Age : The age of the respondent, was classified into

 18-25

 26-30

 31-35

 36-40

 41-50 and

 50 and above.
Table 5.3 Age of Respondents

Age Frequency Percent Valid Percent Cumulative Percent

18-25 20 3.8 3.8 3.8
26-30 99 19.0 19.0 22.8
31-35 225 43.1 43.1 65.9
36-40 76 14.6 14.6 80.5
41-50 69 13.2 13.2 93.7
50 & abv. 33 6.3 6.3 100.0
Total 522 100.0 100.0

The maximum number of respondents is in the age group of 31-35 which is 43% and minimum
number of respondents is in the age group of 18-25 which is 3.8%. 19% respondents are in the age
group of 26-30, 14.6% respondents are in the age group of 36-40, 13.2% respondents are in the age
group of 41-50 and6.3% of respondents are in the age group of 51 and above.

2 Education Status : The education status of the respondent, was classified into

 Illiterate

 SSC fail

 SSC pass

 HSSC pass

 Graduate

 Any other
Table 5.4 Education Status of Respondents

Education status Valid Cumulative

Frequency Percent Percent Percent
Illiterate 73 14.0 14.0 14.0
 SSC fail 151 28.9 28.9 42.9
SSC pass 268 51.3 51.3 94.3
HSSC pass 20 3.8 3.8 98.1
Graduate 5 1.0 1.0 99.0
Any other 5 1.0 1.0 100.0
Total 522 100.0 100.0

The education status of the respondents is as follows. The maximum number of respondents are
SSC pass which is 51.3%. The minimum number of respondents are graduates and with various

other courses which counts to be 1% respectively. 14% respondents are Illiterate, 28.9% respondents
are SSC Fail and 3.8% respondents are HSSC Pass.

1 Marital Status : The marital status of the respondent, was classified into

 Married

 Divorce

 Widow
Table 5.5 Marital Status of respondents

Marital status Frequency Percent Valid Percent Cumulative Percent

Married 477 91.4 91.4 91.4

Divorce 6 1.1 1.1 92.5

Widow 39 7.5 7.5 100.0

Total 522 100.0 100.0

Maximum number of respondents is married and is 91.1%. The minimum number of respondents is
divorced which is 1.1%. 7.5% of the respondents are widow and none of the respondents are
unmarried.

2 Occupation : The occupation of the respondent, was classified into

 Service

 Labour

 Maid servant

 Petty business

 Any other.
Table 5.6 Occupation of Respondents

Occupation Frequency Percent Valid Percent Cumulative Percent

Service 27 5.2 5.2 5.2

Labour 50 9.6 9.6 14.8

Maid servant 407 78.0 78.0 92.7

Petty business 28 5.4 5.4 98.1

Any other 10 1.9 1.9 100.0

Total 522 100.0 100.0

Maximum number of respondents are maid servants which count 78%. Minimum number of
respondents are into various other jobs which counts to be1.9%. 5.2% respondents are into service,
9.6% respondents are labours and 5.4% respondents are doing petty business.

3 Total number of members in the family : It is classified into

 1-2 members

 3-5 members

 More than 5 members

Table 5.7 Total number of Family Members

Numbers Frequency Percent Valid Percent Cumulative Percent

1-2 members 216 41.4 41.4 41.4

3-5 members 285 54.6 54.6 96.0

>5 members 21 4.0 4.0 100.0

Total 522 100.0 100.0

Maximum number of respondents have 1-2 members in their family which is 41.4%. Minimum
number of respondents have more than 5 members in their family which is 4% and 54.6%
respondents have 3-5 number of members in their family.

4 Earning members in the family : It is classified into

  1

 2

 3

Table 5.8 Earning members in a family

Numbers Cumulative
Frequency Percent Valid Percent Percent
1 358 68.6 68.6 68.6

2 154 29.5 29.5 98.1

3 10 1.9 1.9 100.0

Total 522 100.0 100.0

Maximum number of respondents has only 01 earning members in the family which is 68.6%.
Minimum number of respondents has 03 earning members in the family which is 1.9% and
29.5% respondents have 02 earning members in the family.

5 Monthly Income : It is classified into

 Less than 1000

 1001-2000

 2001-3000

 3001 and more

Table 5.9 Monthly Income of Respondents

Monthly income Cumulative

Frequency Percent Valid Percent Percent
Less than 1000 225 43.1 43.1 43.1
1001-2000 101 19.3 19.3 62.5

2001-3000 169 32.4 32.4 94.8

3001 and more 27 5.2 5.2 100.0

Total 522 100.0 100.0

Maximum number of respondents earn less than Rs.1000 per month. Minimum number of
repondents earn 3001and more in a month. 19.3% respondents earn between 1001-2000 in a month
and 32.4% respondents earn between 2001-3000.
 6 Housing status : It is classified into

 Rented house

 Own house
Table 5.10 Housing Status of respondents

Housing status Frequency Percent Valid Percent Cumulative Percent

Rented 122 23.4 23.4 23.4

Own house 400 76.6 76.6 100.0

Total 522 100.0 100.0

Awareness Level of Respondents

Part –II of the questionnaire, includes three questions and all the three questions deals with the
awareness about the microfinance among the respondents.

Micro Finance Awareness amongst respondents

Micro Finance Awareness amongst respondents

Frequency Percent Valid Percent Cumulative Percent

Valid 1.00 473 90.6 90.6 90.6

2.00 49 9.4 9.4 100.0

Total 522 100.0 100.0

Question number 9 deals with, whether respondents have heard about micro finance. Out of 522
respondents, 473 respondents responded ‗Yes‘, which is 90.6%. The outcome of this question is
positive about the awareness about micro finance.

Question No. 10 deals with the awareness about various schemes under micro finance. Options
given for the respondents, were

 Micro credit
 Micro insurance

 Saving schemes

 Employment schemes
Awareness about various schemes of Micro Finance

Schemes Cumulative
Frequency Percent Valid Percent Percent
Micro credit 90 17.2 17.2 17.2

Micro insurance 48 9.2 9.2 26.4

Saving schemes 287 55.0 55.0 81.4

Employment schemes 97 18.6 18.6 100.0

Total 522 100.0 100.0

Respondents are aware about the various micro finance schemes. Maximum number of respondents
which counts 55% is aware about micro saving schemes. Minimum number of respondents which
counts 9.2% are aware about micro insurance schemes. 17.2% respondents are aware about
micro credit schemes and 18.6% respondents are aware about employment schemes related to
micro finance.

Question 11, deals with the source of awareness of micro finance. Options given to the respondents
were:

 Relatives

 Friends

 Neighbors

 SHG Representatives

 Others
Table 5.13 Source of awareness of Micro Finance

Source Valid
Frequency Percent Percent Cumulative Percent
relatives 20 3.8 3.8 3.8
friends 203 38.9 38.9 42.7
neighbours 181 34.7 34.7 77.4
SHG Representatives 88 16.9 16.9 94.3
others 30 5.7 5.7 100.0
Total 522 100.0 100.0
Maximum number of respondents has come to know about micro finance from their friends which
counts to be 38.9%. Minimum number of respondents has come to know about micro finance from
various other sources which counts to be 5.7%. 34.7% respondents has come to know about micro
finance from their neighbors, 16.9% respondents have come to know about micro finance from
SHG representatives and 3.8% respondents have come to know about micro finance from their
relatives.

HYPOTHESIS TESTING:

HYPOTHESIS 1:

Urban Poor people are aware of the concept of micro finance.

RESULT: This hypothesis is validated.
DISCUSSION: Item 9 of the questionnaire deals with the awareness about the microfinance.

Question 9, tests whether the respondents have heard about micro finance and for that, the
researchers got the answer as, 90.6% of the respondents, have heard about micro finance.

Question 11, is the extension of question 9, and tries to find out, the source from where the
respondents have heard about the concept. 38.9 % have heard from their friends and 34.7% have
heard from their neighbors.

From the above results the researcher got, one can say that Hypothesis 1 is validated.

HYPOTHESIS 2:

People of Nagpur city are Aware about various schemes under micro finance.
RESULT: This hypothesis is validated.
DISCUSSION: Question 10, tried to find out the awareness level about the various schemes
available in the platter of Micro finance. Amongst it, saving schemes was the most popular one
with 55%.

From the above results the researcher got, one can say that Hypothesis 2 is validated.
Discussion with DRDA in Nagpur

Around 80% of members should belong to below poverty line in a SHG. SHG get financed easily
for small scale business purpose under micro finance schemes. Minimum 10 and maximum 20
members are required to form a SHG, in which two authorized persons are selected as secretary
and president. No collateral security is required to avail the micro finance; where as the subsidy
granted by government to BPL members of SHG can be kept as a security. SHGs should be
registered under DRDA and DRDA helps SHGs in getting finance from financial institutions. Any
SHG which is approved by DRDA for loan can also be rejected by Bank. DRDA receives 75%
fund from central government and the remaining 25% funds are financed by state government.
There is a grading system adopted by banks and DRDA for SHGs on the basis of their
performance and maintenance of records and reports. Gradation is done by banks and DRDA
after every six months, SHGs get the funds on the basis of there grading. Training to SHGs is given
at tehsil level and training centers are situated at Wardha and Duttapur in Vidharbha region. If the
repayment is done properly and timely by female SHGs group then 4% of the charged interest is
refunded by government to respective SHG. SHGs are awarded cash prices for their performance.

Major Findings

There have been some objectives while conducting the research and these have been proved by the
research as below:

1. The study has focused on the awareness level of microfinance. The study shows that the
awareness level about micro finance of the sample studied is 90.6% (vide table no. 5.11).
The awareness level of the urban poor people about the various schemes and concept of
Micro Finance is hence very high.

2. The study also shows that poor people of Nagpur city has awareness about micro finance
from various sources like 3.8% of the sample people are aware about micro finance from
their relatives, 38.9% people from friends, 34.7% people from neighbors, 16.9% people
from SHG representatives and 5.7% people from various other sources.

3. The study has critically analyzed the various schemes and the awareness level of urban poor
about these schemes. It has been analyzed that 17.2% of the sample are aware about micro
credit schemes, 9.2 of the sample are aware about micro insurance schemes, 55% are aware
about saving schemes and 18.6% are aware about employment schemes (vide table no.
5.12).

4. The study reveals that most of the poor people of Nagpur city are aware about micro saving
 schemes and also these schemes are the most opted for options amongst the targeted
consumers.

5. Micro finance is only given to the poor married women for starting their own business or
for financing the existing business. Also various saving schemes are being provided to
the consumers. Consumers are also being provided with loans for purchase of commercial
vehicles and personal two wheelers.

6. The high level of awareness has been proved in the city of Nagpur about micro financing.
Recommendations

1. Loan size should be increased enough to meet the requirements of borrowers.

2. The people should be given more opportunities for loan attainment.

3. Knowledge should be provided by MFIs to interested borrowers for the better utilization of
credit.

4. Interest rate should be decreased so that more and more applicants can avail microfinance
facilities.

5. If microfinance is to be made a successful mass movement, the operations need to be made

streamlined, cost effective and transparent.

6. MFI should disclose effective interest rate to the borrowers. Hiding effective interest rate to
poor and illiterate borrowers by using ―creative‖ accounting practices is highly
immoral. The poor borrowers have a right to know the true asking price of the micro loan in
form of effective annual interest rate, so that, they can take right borrowing decisions.

7. The government should provide the basic infrastructural facilities such as good roads,
schools, hospitals, constant power supply etc in the state to enable individuals achieve the
benefits of microfinance.

8. The level of corruption in our country should be checked to prevent the misplacement of
microfinance funds to the hands of the politicians in the society.

9. The Poverty Alleviation Programme should be restructured to meet the needs of the less
 privileged members of the society mostly the women that are in serious need for
microfinance.

10. The government should place proper supervision and regulation of most of the
microfinance institutions in the country to prevent the collapse of such institutions as
witnessed in the past in some regions.

11. To achieve the research objectives more than one policy intervention may be required. In
Essence this calls for both private (microfinance) and public partnerships to create the
environment where such poverty reduction objectives could be realized. Overall there is
need to have a sustainable mix of both market and non market policy interventions for
poverty reduction if the impacts due to an intervention policy are to be sustainable.

12. The existing market structure is also very important in determining the impact of policy
interventions on the target output.

13. There is urgent need to streamline the procedure for applying, seeking and releasing of
credit from the banks. The procedural difficulties are one of the major issues, which have
denied women the financial benefits of the banks. Therefore, the procedure for credit access
to women should be made more easy and simple.

References:

1. http://www.sksindia.com/faq.php

2. (Rural Credit and Self Help Groups- Microfinance needs and Concepts in India-
K.G.Karmakar 1999).

3. (World Bank NCAER, Rural Financial Access Survey 2003)

4. [‗Mainstreaming of Indian Microfinance‘- P.Satish, 2005]

1. (Source: Field Survey by Author and Impact Assessment of Microfinance in India- Frances
Sinha and the impact assessment team: EDA Rural Systems Pvt. Ltd, Gurgaon, 2003)

2. (www.worldbank.org/gender/prr/engendersummary.pdf.)
3. [Sampark (2003) ‗Mid-Term Impact Assessment Study of CASHE Project in Orissa].

4. http://www.aptsource.in/admin/resources/1273818337_UNPAN024232.pdf
(Microfinance in India: A critique by Rajarshi Ghosh)

5. (World Bank. Engendering Development: Through Gender Equality in Rights, Resources,

and Voice—Summary. (Washington: World Bank, 2001)

6. www.worldbank.org/gender/prr/engendersummary.pdf.)

7. Anand Kumar, T.S.; Praseeda S.and Jeyanth K. N. "Operational guidelines for sustainable
housing micro-finance in India", International Journal of Housing Markets and Analysis,
Vol. 1 I No.4, 2008:303-312.

8. Gordon, A.N. and others "Improving maternal healthcare utilisation in sub-Saharan Africa
through micro-finance", International Journal of Health Care Quality Assurance, Vol. 24
Iss: 8, 2011:601-610.

9. Kamath, R. and Srinivasan, R. ‗‘Microfinance in India: Small, Ostensibly Rigid and

Safe,‘‘ 2009.

10. Fields, G.S. ―Earning their way out of poverty: A Brief Overview,‖ The Indian Journal
of Labour Economics, Vol. 53, I.No.1, 2010,

11. Fe Bureau ‗Reforms can reduce the size of poor to 6% by 2025‘, The Financial Express,
Mumbai, 2009: 4.